Corporate Finance Assignment/ Professional Essay Writers
Tesla needs to raise 1 billion to develop a new car. The firm has three options. It can use a one-year debt. Tesla believes 10% would be a fair rate given the investment risk, however, investors love Tesla’s CEO Elon Musk so much, Tesla only needs to pay a 5% interest rate for its Debt. Tesla can also issue equity, which is overpriced by 100%. Last, Tesla can use its own cash reserve to fund the investment.
a. What is the cost to Tesla’s shareholders if Tesla uses its cash to fund the investment?
b. What is the cost to Tesla’s shareholders if Tesla issues debt to fund the investment?
c. What is the cost to Tesla’s shareholders if Tesla issues equity to fund the investment?
d. Should Tesla choose cash, debit, or equity? Just answer which one. Get Finance Help Today